Hybrid Systems Documents

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Lecture 21:
Competitive Analysis
Steven Skiena
Department of Computer Science
State University of New York
Stony Brook, NY 117944400
http:/www.cs.sunysb.edu/skiena
Motivation: Online Problems
Many problems in both nance and computer science reduce
to tryi

Lecture 7:
Bounds on Options Prices
Steven Skiena
Department of Computer Science
State University of New York
Stony Brook, NY 117944400
http:/www.cs.sunysb.edu/skiena
Option Price Quotes
Reading the Quotes
Bid and Ask are what the market maker is willing

Lecture 6:
Portfolios with Stock Options
Steven Skiena
Department of Computer Science
State University of New York
Stony Brook, NY 117944400
http:/www.cs.sunysb.edu/skiena
Portfolios with Options
The raw materials of investments we have include borrowing/

Lecture 12:
The Black-Scholes Model
Steven Skiena
Department of Computer Science
State University of New York
Stony Brook, NY 117944400
http:/www.cs.sunysb.edu/skiena
The Black-Scholes-Merton Model
Analyzing the Binomial tree model with innitely time smal

Lecture 9:
Random Walk Models
Steven Skiena
Department of Computer Science
State University of New York
Stony Brook, NY 117944400
http:/www.cs.sunysb.edu/skiena
Financial Time Series as Random Walks
J. P. Morgans famous stock market prediction was that
Pr

COMP 510 Computational Finance
Prof. Steven Skiena
Fall 2008
Homework 1 Options Pricing
Due Tuesday, October 28, 2008
We have devoted considerable time this semester to the theory of options pricing. In this
assignment, you are asked to price the options

Lecture 1: Introduction to Finance Steven Skiena Department of Computer Science State University of New York Stony Brook, NY 117944400 http:/www.cs.sunysb.edu/skiena
Why Computational Finance?
It is hard to overstate the importance of the nancial industry

COMP 510 Computational Finance
Prof. Steven Skiena
Fall 2008
Homework 2 Trading Strategies
Due Thursday, November 27, 2008
The development of algorithmic trading strategies for equities is a particularly exciting part
of Computational Finance. In this ass

You an: valuing the stock ofPannt Carp. based an the ﬁrrn‘s omisolidated ﬁnancial stalwarts. The
ﬁrm reports tho foilowinglmldings in other firms:
(i) a 25% holding in company A , classiﬁed as a mi:th Passive irwcsmﬂit
(ii) a 30% holding in oompmy B, clas

I. Which ot'the following would NOT be a component ot'working capital?
a] Wages payable
b] Accounts receivable
c} Deferred Taxes
d} Inventory
2. Which ot‘the following would result in a decrease in Return on Equitj,r {ROE}, assuming all other
things are h

Lecture 2:
Financial Markets and Products
Steven Skiena
Department of Computer Science
State University of New York
Stony Brook, NY 117944400
http:/www.cs.sunysb.edu/skiena
Bond Markets
Bond markets trade bonds (loans) made to governments and
government a

Lecture 16:
ARIMA / GARCH Models
Steven Skiena
Department of Computer Science
State University of New York
Stony Brook, NY 117944400
http:/www.cs.sunysb.edu/skiena
Moving Average Models
A time series is said to be a moving average process of order
q if it

Lecture 13:
Financial Time Series Data
Steven Skiena
Department of Computer Science
State University of New York
Stony Brook, NY 117944400
http:/www.cs.sunysb.edu/skiena
Time Series Analysis
A time series consists of the values of a function sampled at
di

Lecture 20:
Technical Analysis
Steven Skiena
Department of Computer Science
State University of New York
Stony Brook, NY 117944400
http:/www.cs.sunysb.edu/skiena
The Efcient Market Hypothesis
The Efcient Market Hypothesis states that the price of
a nancia

Lecture 24:
Market Microstructure
Steven Skiena
Department of Computer Science
State University of New York
Stony Brook, NY 117944400
http:/www.cs.sunysb.edu/skiena
Types of Buy/Sell Orders
Brokers can typically perform the following buy/sell orders
for e

Lecture 23:
Pairs Trading
Steven Skiena
Department of Computer Science
State University of New York
Stony Brook, NY 117944400
http:/www.cs.sunysb.edu/skiena
Pairs Trading
This strategy was pioneered by Nunzio Tartaglias quant
group at Morgan Stanley in th

Lecture 17:
Spectral Analysis
Steven Skiena
Department of Computer Science
State University of New York
Stony Brook, NY 117944400
http:/www.cs.sunysb.edu/skiena
Spectral Analysis
Certain phenomena of nancial (and other) time series data
is best revealed i

Lecture 22:
Competitive Analysis for Finance
Steven Skiena
Department of Computer Science
State University of New York
Stony Brook, NY 117944400
http:/www.cs.sunysb.edu/skiena
Competitive Ratio
We say an online algorithm ALG is c-competitive if there is
a

Lecture 14:
Correlation and Autocorrelation
Steven Skiena
Department of Computer Science
State University of New York
Stony Brook, NY 117944400
http:/www.cs.sunysb.edu/skiena
Overuse of Color, Dimensionality, and Plots
Four colors, three dimensions, and t

Lecture 15:
Time Series Modeling
Steven Skiena
Department of Computer Science
State University of New York
Stony Brook, NY 117944400
http:/www.cs.sunysb.edu/skiena
Modeling and Forecasting
We seek to construct a model of a function so as to forecast
futur

Lecture 5:
Properties of Stock Options
Steven Skiena
Department of Computer Science
State University of New York
Stony Brook, NY 117944400
http:/www.cs.sunysb.edu/skiena
Types of Options
American options can be exercised anytime prior to the
expiration da

Lecture 11:
Risk-Neutral Valuation
Steven Skiena
Department of Computer Science
State University of New York
Stony Brook, NY 117944400
http:/www.cs.sunysb.edu/skiena
Risk-Neutral Probabilities
We can use an arbitrage argument to set the right
probability